Revisiting Retail Channels You Thought You Knew

Retail channels are often viewed in a horse-race fashion: Who's ahead and who's behind. That traditional approach still makes sense, but there are now additional ways to view these channels that provide new insights into how fast things are changing.

First, let's look at the traditional scorecard, which is presented as part of this week's theme issue on retail channels. The article "On the Attack" reports that supermarkets joined dollar stores and membership warehouse clubs as winners last year, according to consumer shopping data from Retail Forward. On the flip side, drug stores and convenience stores lost traffic.

Other retailers widely considered to have done well during the recession were limited-assortment stores such as Aldi and Save-A-Lot, which have ambitious growth plans centered around food.

Wal-Mart Stores, meanwhile, faced obstacles as it changed practices in pricing and assortment range. However, now it seems the supercenter operator is prepared to get more aggressive on price and will backtrack on some assortment changes, noted one analyst. That indicates a new price war may be at hand, which would certainly shake up channel competition.

Now let's look beyond the immediate race at underlying factors. Retailers within channels are turning business models on their heads in ways that change the nature of the channels they operate in. Part of this involves the embrace of food marketing by all kinds of retailers, but it's more than that. We're now at a point where some retailers are changing the very attributes that have defined them.

A case in point is convenience stores. Center Store's feature this week, "How Convenient," outlines how some of these operators, long known for brand-heavy assortments and relatively high prices, are shifting their businesses to sharper pricing with the help of private labels. This strategy is aimed at helping c-stores boost margins squeezed by lower gas prices and declining cigarette purchases. Interestingly, some of these new corporate brands are being geared to a c-store customer that has long seemed resistant to private label: Hispanics.

There are more shifts coming down the road for retail channels. Demographic changes will continue to shake up the ethnic retailing channel, which has consisted of small operators pursuing local or regional strategies.

Eventually we're likely to see the rise of chains devoted to ethnic groups, Neil Stern, senior partner at McMillan Doolittle, Chicago, said in a recent SN article forecasting changes over the next 10 years. Meanwhile, the general trend toward value will spur the growth of discount retailers, including the emergence of new players in the U.S., which may at some point include Germany's Lidl, Stern added.

Over time, grocery stores will increasingly defy their stereotypes. Their focus will shift to “accommodate different shopping missions,” according to Stern, part of a larger trend he calls fragmentation.

Supermarkets need to be ahead of all these trends because the moves will impact their one-stop-shop mission. Supermarkets have already begun to embrace multiple formats, which gives them more flexibility to target different types of shoppers. They'll need to further customize to keep pace with all the shifts ahead.